Below is an excerpt from the book Downsize Sooner than Later – 18 Rules for Retirement Success available on Amazon.com.
In the first rule, we called out the fact that certain bills will always be with us, regardless of how long we live. It is crucial to take some time and try to think about what your ongoing bills will look like when you retire. Eventually, you must compare your expected expenses in retirement to your expected sources of retirement income.
In the final analysis, your income must consistently exceed your expenses.
Otherwise – and especially in the modern era of multi-decade retirements – spending more than you make is like setting sail in a boat full of holes.
No, wait…it’s worse than that.
This is because it’s not really you in the boat. The “you” you think of today is most likely your current, strong, invincible, ready-to-face-future-challenges self. In the boat, however, is your future self. Your old-age self. And it’s also likely your old-age spouse is in the boat with you. This is a very fragile time and arguably the worst possible moment for your boat to fill with water and capsize.
Understanding the virtue of spending less than you make is easy but implementing a lifestyle that enables it is difficult.
In most financial books, this is the moment when you are given advice to gather your willpower and establish a budget. While strict budgeting is effective for some, for most others, such advice utterly fails. It is human nature that people psychologically resist being limited by a budget. Too much sacrifice. Too much discipline. Too much willpower. Too difficult to stick with over the long haul.
Complicating this fact is the chaotic nature of future expenses. As anyone responsible for managing a household’s finances knows, life throws unexpected bills your way. Anticipating these expenses in advance is extremely difficult and such expenses can kick even the most well-conceived budget into a tailspin.
I would like to suggest an alternative to strict budgeting.
I will be repeating this mechanism as a solution to various challenges presented throughout these rules. Instead of focusing on establishing a hard-and-fast budget, focus on establishing hard-and-fast routines. Some examples:
- Grandma Jamie used to overspend on Christmas gifts for her grandchildren, but she doesn’t do that now. How? She instituted a practice of sending each grandchild a $50 bill at Christmas. Unless she gets more grandchildren, her expenses don’t go up. Her consistent routine prevents her from overspending, and she knows ahead of time exactly how much money she will need to cover her costs. The grandchildren like it too and look forward to spending their “Grandma money.”
- Alicia and Tom enjoy eating out together but found they were spending far too much doing so each month. So, rather than go out on Friday evenings to someplace costly, they found a favorite restaurant they like for breakfast on Friday mornings. They split a big-breakfast menu item between the two of them. They enjoy the food, the atmosphere, and the time they spend together. When the bill comes, it is a fraction of what they would otherwise have spent. Their “date morning out” is something they look forward to each week, and it is aligned with their long-term goal not to overspend.
- Jane and Allen were discussing how, while they enjoyed traveling to out-of-town locations for weekend trips, it was proving rather costly. They observed that they spent little time focusing on fun things they could do together close to home. They began searching for attractions of interest locally. Something that stood out was the community bike trail. For exercise in the evenings, they started taking short walks along the trail. Formerly a railroad line, the trail cuts through some of the most beautiful scenic woods in their area. Eventually, they bought bikes and became regular riders on the trail – biking as often as five times a week! These outings help them stay in shape, afford them quality time together, and provide hours of enjoyment at virtually zero cost.
I could go on for days with examples like these. They embody a big secret that many people fail to understand. Spending less is more about living intentionally and building properly aligned routines than it is about willpower and sacrifice. While willpower does play a small role in the beginning, it is the spark and not the engine. The same goes for other areas we will be discussing such as health, diet, exercise, finding more quality time to spend with loved ones, successful investing, and more.
Expressed as formulas:
• Best intended budget + same old routine = failure.
• New and better routine + time = success!
What are your priorities and how are they reflected in your daily lifestyle?
Do you want to achieve optimal body weight, but your hobby is watching cooking shows and baking sugary cakes and cookies? Do you want to drink less, but spend your weekend nights with friends who always seem to end up at the bourbon and cigar bar? Do you want to improve your professional skills through reading, but spend evenings binge-watching crime shows?
If so, the actions you are taking regularly – your routines – are out of alignment with your long-term goals. Without a change in lifestyle, it will be extremely difficult to get what you want.
If you would like to spend less, you must construct a daily way of living that is in alignment with that goal. The prime movers are not “limits,” “deprivation,” “willpower,” “sacrifice,” or even “discipline.” Instead, success is derived from words such as “deliberate,” “intentional,” “designed,” “aligned,” and “consistent.”
As an exercise, take a moment to list the things on which you spend money.
Highlight the items that make you cringe because either you resent the expense, or you feel they are costing you more than you want to spend. Especially, list ongoing monthly expenses that exceed $300 per month.
Note that every $300 per month in expenses during a 25–30 year retirement will cost you roughly $100,000. Does a regular expense come in at $600 per month? That’s $200,000.
Decide if these expenses are worth the cost. From there, brainstorm lifestyle changes that are consistent with your values and goals that would help you eliminate or substantially reduce such ongoing expenditures.
Questions or comments?
I can be reached at this link – contact Ted Stevenot.